E.ON Credits Contract Renegotiations for Increased Earnings
German utility E.ON has today credited the renegotiation of gas contracts last year for an increase in earnings in 2012.
In the 2012 financial year, earnings before interest, taxes, depreciation, and amortization (EBITDA) for the company increased by €1.5 billion on 2011, bring the total amount to €1.5 billion. The utility said that a reduction in the cost of gas imports was a major factor in the positive result.
"The main reasons for the increase were a significant improvement in the gas wholesale business following the renegotiation of gas-procurement contracts with producers and the retroactive recovery of losses recorded in earlier years," a statement read.
In July last year, the company finally reached agreement with major Russian supplier Gazprom, following months of negotiations on the terms of a gas deal between the two. Previously, pricing of the gas supplied to E.ON had been linked to oil prices, a practice that became increasingly problematic last year as gas prices were driven lower than oil prices. Gazprom had been supplying 35 per cent of E.ON's gas needs at those prices.
E.ON also renegotiated its contract with Statoil in March of last year following a year of massive losses for E.ON in 2011. In that year, E.ON made a loss of €700 million on its total gas sales and supply.
Despite the positive results seen today, E.ON expects that it will be less successful financially in the current year. EBITDA for 2013 is expected to be between €9.2 and €9.8 billion, the company said, due to the sale of assets under its divestment programme, which was enacted in response to the negative results of 2011. Underlying net income for 2013 is expected to be between €2.2 and €2.6 billion.
Reflecting on the year, CEO of E.ON Johannes Teyssen predicted further difficulty ahead.
"Our solid results, which also reflected a number of positive one-off effects, are gratifying and a tribute to our employees’ outstanding dedication and performance, particularly in difficult times, he said at the company's annual-results press conference in Dusseldorf. “But we have no reason to sit back and relax, since our sales volume and earnings remain under pressure, especially in conventional power generation. In particular, our technologically advanced, climate-friendly gas-fired power plants are currently barely profitable, although they’re urgently needed for the stability of the power system.
"Policymakers need to act swiftly on this issue. Otherwise we’re going to have to shut down power plants."